The 'economic value added' model that we follow at TCS ensures that the compensation packages of our employees are determined by the value they bring to the organisation. The more they deliver, the more are their rewards.

Besides an extremely competitive compensation scale, we have adopted the highly effective 'economic value added' (EVA) model. We are the first organisation in India to implement this competitive salary structure, which determines compensation based on value delivered to the employer.

EVA allows your compensation to grow as fast as the results you produce. It is a basis for measuring performance and bonus, and is measured at the enterprise and department levels. The EVA system calculates profits after considering all costs, including that of capital.

If our revenues are in excess of our costs — including operating expenses, costs of developing and investing in our people, products and business — we have created value.

An illustration
Let's illustrate the concept with a simple example. Assume that you borrow Rs 1,000 from a bank for one year to start a pizzeria. The interest rate on the loan (your cost of capital) is 12 per cent, which amounts to Rs 120 in interest. At the end of one year your pizzeria has a turnover of Rs 1,150, and your expenses have been Rs 1,000. That means your little pizzeria has earned a profit of Rs 150 (15 per cent).

Now you owe the bank Rs 120 in interest on the original Rs 1,000. Taking the Rs 150 earned from your pizzeria and subtracting Rs 120 as capital charge, you get your personal EVA, which is Rs 30. However if you could have churned out a turnover of Rs 1,500 or more at the same operating cost, or even netted the same turnover at a lower operating cost, your EVA would be more.

This amply illustrates that EVA is a framework that rewards personal performance.